Trump exerts pressure; Federal Reserve Chairman Powell holds firm
Federal Reserve Chairman Powell clearly stated this week that he will not easily yield to President Trump's demands for rate cuts. So, under what circumstances would Powell change his mind? Powell revealed the key considerations for his policy decisions during a congressional hearing.
Uncertain prospects for a rate cut in July
Powell firmly believes that high tariffs will at least temporarily push up inflation, and he tends to wait for price changes before deciding whether to cut interest rates. In his semiannual testimony to Congress, he noted: "We are closely monitoring actual changes in inflation data. The cost of tariffs will ultimately be borne by someone." Powell emphasized that premature interest rate cuts could lead to a rebound in inflation, and the risks of waiting longer to ensure price pressures are controlled are far greater. He warned: "Policy mistakes could come with long-term costs."
Differences with some Federal Reserve officials
Powell's stance differs from that of Federal Reserve governors Waller and Bowman, who stated that they support a rate cut in July if the current inflation trend continues. However, up to now, other high-ranking Federal Reserve officials have not expressed support for this. Michael Feroli, chief U.S. economist at JPMorgan, pointed out that it currently seems that only Waller and Bowman have shifted to a dovish stance.
The upcoming CPI report is crucial
The next important inflation data that Powell is focused on is the June Consumer Price Index (CPI), which will be released in three weeks. He stated that the inflation impact related to tariffs should become evident in the coming months, and said, "The data for June and July will start to reflect the impact of tariffs." If the month-on-month increase in the June CPI reaches 0.2% or higher, the Federal Reserve may postpone its rate cut plans until September; if the increase is similar to May's at 0.1%, it could reignite expectations for a rate cut in July. Powell acknowledged that low inflation could prompt earlier rate cut actions, but he refused to specify a specific meeting timetable.
Potential changes in the job market
According to legal provisions, the Federal Reserve not only has to maintain low inflation but also has the responsibility to sustain a strong job market. Powell hinted that if the job market significantly deteriorates, the Federal Reserve might take interest rate cuts earlier or more aggressively. He pointed out: "Problems in the job market will be another situation that prompts us to cut rates earlier." Although the unemployment rate remains at a low 4.2%, and the job market appears robust on the surface, there have been signs of pressure, such as a slowdown in hiring, an increase in unemployment claims, and a continuous rise in the number of people receiving unemployment benefits. Waller mentioned these cracks in the job market last week, stating that these signs support the possibility of the Federal Reserve taking action to cut rates in July.